Is NPS better than Mutual Funds?

The NPS and Mutual Funds themes are both market-linked and have several similar benefits, yet there are some significant differences between the two and also specific individual advantages.

Is NPS better than Mutual Funds?

The National Pension Scheme (NPS) is a retirement saving scheme launched by the government of India to secure the life of an individual financially after retirement. NPS is a long-term investment plan that helps to secure long-term goals.

Mutual funds are formed by money pooled by a huge number of investors having common investment objectives. This money is then invested in bonds, equity, government securities, etc. It provides different plans to invest in based on your long-term and short-term financial goals.

Here is the basic difference between these fund –

• The minimum investment amount of NPS is Rs 6000. Whereas the minimum investment amount of MF is Rs 500. The Lock-in period of an NPS is till retirement whereas in MFs do not have a lock-in period other than ELSS funds.

• Flexibility is low in the case of NPS whereas MF has high flexibility.

• In NPS only 20 % of the total amount can be withdrawn whereas in the case of MF it can be redeemed anytime.

• In the case of NPS, up to Rs 150,000 with additional benefits of 50,000 rupees tax benefit is availed whereas, in a mutual fund, ELSS exempts tax to investments up to Rs 150,000.

Both NPS and Mutual funds are great options, NPS is great for long-term investments and a much safer option, mutual funds help in achieving your short-term and long-term goals.

If you are looking for your retirement plan and securing your post-retirement life then you should have a combination of NPS and mutual funds.

Investing in Mutual Funds in your 20s

Investors who start investing in their early 20s get more time to grow their wealth, so they would be in a better position to reach all their financial goals easily.

Investing in Mutual Funds in your 20s

Here, are some key strategies that individuals in their 20s can apply to start making investments.

Start investing early

The most common money mistake individuals in their early 20s make is delaying their investment decision. This delay can very costly. To avoid this, you can start with a Systematic Investment Plan (SIP) in a Mutual Fund. By starting a small SIP of Rs. 500 per month, an investor can watch their money grow over time, and this will act as an incentive to save and invest in the future.

Learn the basics of finance

Young people should learn the basics of financial planning, taxes, and investment products.

Saving First, Spend later

Invest 20% of your salary every month. Increase the saving amount by 10% every year. You must be wondering, how will this amount make a difference. A small amount of Rs 10,000 grows to Rs 40 lakhs in 10 years. It’s just a matter of starting.

Investing in mutual funds for the first time

Mutual fund investing is a long-term attempt and should be connected to your financial goals. There is no exceptional strategy that will fit all types of investors. Instead of the best funds, you should ask about the right funds that are suitable to meet your needs.

Investing in mutual funds for the first time

Each investor is different, specifically risk appetite and time horizon for the investment may differ.

Now, as first-time investors, the question arises how can we find the right mutual fund for ourselves?

It’s a very simple process, you just need to be aware of two things: -

Priority of your goal

the most important question is understanding your goal and prioritising it. Education expense versus buying a car, which one is more important? Each person may have a different answer but that becomes a defining line.

How far is your goal?

You need to be aware of how far your goal is and how much you need to save monthly to meet the same.

Once you are aware of your financial objective, you pick up a mutual fund in these categories:

1. Less than one year – Investing in liquid debt funds. These funds are low-risk and will conserve your capital and provide moderate growth.

2. Invest for 3-5 years – As you have a slightly longer duration, you can combine debt funds with 25-30% large-cap equity funds. This will help you to grow wealth without taking too much risk.

3. Invest for more than 5 years – Since you can give your investments a lot of time to grow, you should opt for equity funds. Within equity funds, you can choose a combination of equity funds.